Opinion
No. 35166.
February 22, 1943. Suggestion of Error Overruled March 22, 1943.
1. SUBROGATION.
Where purchaser of land on which there was a mortgage securing a debt which purchaser did not assume, paid the debt in order to free land from lien thereof, purchaser was entitled to be "subrogated" to rights of creditor, so as to be entitled to corporate stock given as additional security for the debt, only if not to grant subrogation would result in debtor or his successors in right becoming unjustly enriched by retention of benefits conferred on debtor by purchaser's payment of his debt and burden to establish such fact was on purchaser.
2. SUBROGATION.
Where purchaser of land on which there was a mortgage securing debt which purchaser did not assume paid the debt in order to free land from lien thereof, purchaser was not entitled to be "subrogated" to rights of creditor, so as to be entitled to corporate stock given as additional security for the debt, in absence of proof that purchaser had been forced to pay more than value of land for a clear title thereto by debtor's failure to pay the debt.
APPEAL from the chancery court of Desoto county, HON. L.A. SMITH, SR., Chancellor.
Gerald Chatham, of Hernando, for appellants.
If the appellees have suffered loss by the payment of the Federal Land Bank's mortgage in order to protect their own security, which was represented by an inferior lien, then undoubtedly appellants would be entitled to be subrogated to the security held by the Federal Land Bank. But the record does not disclose, nor any of the facts or circumstances in the record indicate, that the appellees suffered any loss or any injustice by the payment of the indebtedness to the Federal Land Bank owing by A.M. Haraway, deceased. The security of the appellees, Sledge Norfleet, was not diminished by the cash payment to the Federal Land Bank, but stood so far as the land security was concerned exactly as it did before. The Federal Land Bank had $5,000 worth of security, and Sledge Norfleet merely purchased this security, and instead of having $5,000 in money they had $5,000 in value.
Aetna Insurance Co. v. Middleport, 124 U.S. 547; Citizens Mercantile Co. v. Easom, 158 Ga. 604, 123 S.E. 883, 37 A.L.R. 378.
A junior encumbrancer who, in order to preserve his own security, is compelled to pay a prior encumbrance held by another is not a mere volunteer, and, as equitable assignee, is entitled to be subrogated to the rights of the prior lienor whose lien he has paid, including all securities held by such prior encumbrancer. In some jurisdictions this is the rule by reason of statute. Thus, a junior chattel mortgagee, junior mortgagee, who, in order to preserve his own security, is compelled to pay a prior encumbrance, held by another, or a beneficiary or trustee of junior deed of trust and junior judgment creditor, who, in order to preserve his own security, is compelled to pay a prior encumbrance held by another, is entitled to be subrogated to the rights of the prior lienor or mortgagee whose lien or mortgage he has paid to the extent of the amount paid by such junior mortgagee or judgment creditor.
60 C.J. 801, Sec. 110.
A creditor has no right of subrogation to the claim of his debtor against another person arising out of another transaction with which he (the creditor) was a stranger, simply because his debtor is insolvent, and equity will not entertain a bill for that purpose.
Rothwell v. Brice, 119 S.E. 293.
Jas. R, McDowell, of Memphis, Tenn., for appellees.
Counsel for appellants, in my opinion, is proceeding on an erroneous conception of what constitutes subrogation as defined by the courts in an unbroken line of decisions throughout the country.
He seems to argue that we must show that we suffered a loss by paying off the first mortgage. I do not understand the doctrine to be that we must suffer a loss when we pay off the mortgage, but that we must not be a mere volunteer, but, being the owners of the property or having a junior encumbrance, we are forced to satisfy the prior lien holder to prevent enforcement of his lien, which would result in the loss of our property.
Counsel cites 60 C.J. 801, Sec. 110, where the author states that the person paying the prior encumbrance is entitled to be subrogated to the rights of the prior lienor or mortgagee whose lien or mortgage is paid to the extent of the amount paid by such junior mortgagee or junior creditor.
As title holders under a junior mortgagee appellees would be entitled to subrogation to the rights of the prior lienor, the Federal Land Bank, "to the extent of the amount paid by appellees." In other words, appellees paid about $4,200 at the time of the final settlement with the Federal Land Bank, having previously made installment payments after the death of A.M. Haraway. Certainly appellees would be entitled to stand in the shoes of the prior lienor, and any amount remaining in the hands of such lienor after the satisfaction of the debt by appellees, such as was released here by the conversion of the stock, would either be applied to the debt, or if that were not done, delivered to the appellees who took the place of the Federal Land Bank.
I do not follow counsel's argument when he uses the underscored words "to the extent of the amount paid," etc. To what extent is he subrogated if not to the full amount paid to satisfy the lien. I do not know where the line would be drawn. There is nothing in the books to indicate any stopping point. He is either subrogated to the rights of the prior lienor or he is not. I think it has been clearly demonstrated that appellees are subrogated to the rights of the Federal Land Bank, and to all the rights of the Federal Land Bank, and entitled to step into the same position the Federal Land Bank occupied, and apply any other collateral which the Federal Land Bank had toward the payment of the debt, or repayment to him up to the full amount of the debt paid by appellees.
The court will bear in mind what counsel seems to pass over entirely, which is that the debt paid by appellees was the debt of A.M. Haraway, for which appellees were not liable, but it was a prior encumbrance on the property of appellees and in order to protect their interest appellees had to get rid of it. Having done so, they step right into the shoes of the Federal Land Bank so far as any and all collateral is concerned "to the extent of the amount paid."
The appellees, J.P. and R. Vance Norfleet, doing business under the name of Sledge Norfleet Company, obtained a decree in the court below against the appellants for $250, alleged in the appellees' bill of complaint to have been received by the appellants from the Federal Land Bank, of New Orleans, under circumstances that caused them to hold it in trust for the appellees. The case was tried on bill, answer, and proof, from which, among other but irrelevant matter, appears the following:
Sledge Norfleet Company, a corporation, held a second deed of trust on land owned by A.M. Haraway, securing a debt due by him to it. The Federal Land Bank of New Orleans held a prior deed of trust given it by Haraway on this land securing a debt due by him to it of $5,000. When this loan was made by the bank to Haraway, it required him to purchase a portion of its corporate stock, valued at $250, and to leave the stock with it as an additional security for the loan made him. Sledge Norfleet Company foreclosed its second deed of trust on this land and purchased it at the trustee's sale therefor for $3,000, which was credited on the debt due it by Haraway, leaving a considerable balance due thereon. Haraway died thereafter, leaving the appellants as his heirs at law. A short time prior to the filing of this bill of complaint and after the administration of Haraway's estate had been closed, the appellees, who had succeeded to the title of Sledge Norfleet Company to the land, paid the balance due the Federal Land Bank on its loan to Haraway, amounting to $4,188.80. Immediately after this payment was made, the appellees indicated to the bank that they would claim this stock left with it by Haraway as an additional security for the loan made him, or its value. The bank, however, preferred to, and did, pay by means of a check, the $250 to Haraway's heirs, advising the appellees thereof in a letter setting forth "and if they (meaning Haraway's heirs) desire to do so, they may simply endorse this check over to Mr. Norfleet." The appellants declined to endorse this check to the appellees, but cashed it and retained its proceeds.
The ground of the appellees' claim to the money is that when they paid the Federal Land Bank the debt due it by Haraway, they became entitled not only to a cancellation of the deed of trust securing its payment but also to the possession of the corporate stock, or its proceeds, pledged to the bank by Haraway as additional security therefor, from which it follows that thereafter the bank held the stock under a constructive trust for the benefit of the appellees, to the obligation of which trust the appellants succeeded when the proceeds of this stock were paid to them by the Federal Land Bank with the knowledge by the appellants of what has just been hereinbefore said.
Several interesting questions would here arise, but the basic one (a decision of which adverse to the appellees would end this case) is, Did the bank hold this stock in trust for the appellees after the payment to it by them of the debt due it by Haraway? Such trust arises, if at all, under the equitable principle of subrogation, to which we now come.
As will have been observed, the case here presented is not that of a purchaser of land on which there is a deed of trust or other lien, who has discharged this lien by paying the debt secured thereby and seeks to be subrogated thereto as a protection against other liens on the land subordinate to the one paid off, nor that of a surety paying the debt of his principal and seeking to be subrogated to a security for the debt held by the creditor whose debt the surety has discharged; consequently, the authorities dealing with either of these cases, while of value, are not controlling here. The case presented is one in which a purchaser of land on which there is a mortgage securing the payment of a debt which he did not assume when purchasing the land, has paid the debt secured by the mortgage in order to free the land from the lien thereof, and seeks to be substituted in the place of the creditor in relation to the debt paid by him, — here, specifically to the benefit of the stock pledged by the debtor to the creditor as an additional security for the payment of the debt. To this the appellees are entitled under the equitable principle of subrogation, provided subrogation to the right of the Federal Land Bank to this corporate stock pledged to it by Haraway is necessary "for the doing of complete, essential, and perfect justice between" them and Haraway whose debt they have paid. Robinson v. Sullivan, 102 Miss. 581, 59 So. 846; Prestridge v. Lazar, 132 Miss. 168, 95 So. 837; Ellis-Jones Truck Co. v. Coker, 156 Miss. 775, 125 So. 826, 127 So. 283. Or, to express it differently, the appellees are entitled to the claimed subrogation, provided that not to grant it would result in the debtor, Haraway, or his successors in right, becoming unjustly enriched by the retention of the benefit (here the release of the corporate stock) conferred on the debtor, Haraway, by the appellees' payment of his debt. Rest. Restitution, sec. 162. Tested by either of these rules, which are, in effect, the same, the appellees did not become subrogated to the right of the Federal Land Bank to this corporate stock, and, therefore, it did not hold it in trust for them. While the debt paid by the appellees was Haraway's obligation, which obligation was not to them but to the Federal Land Bank, the appellees had the right to pay the debt in order to clear their land from the lien or mortgage securing it, and, therefore, were not volunteers in so doing, so that the only inquiry here is, — did the appellees suffer any financial loss by paying this debt of Haraway's? The answer to this question would appear in the answer to the further question — is the aggregate of the $3,000 paid by the appellees for the land and the $4,188.80 paid by them to the Federal Land Bank to clear it from the lien of the bank's mortgage thereon more than the value of the land? In other words, have the appellees been forced to pay more than the value of the land for a clear title thereto by Haraway's failure to pay his debt to the Federal Land Bank? On that question the record is silent, for the value of the land, the burden of proving which was on the appellees, nowhere appears therein.
The decree of the court below will be reversed and the appellees' bill of complaint will be dismissed.
So ordered.
ON SUGGESTION OF ERROR.
Appellees suggest that we remand this cause for the lower court to determine whether the fund in question should be retained by appellants or that appellants be held liable therefor for the general creditors of A.M. Haraway, deceased. Of course, the opinion herein only adjudicated, and was confined to, the issues and parties involved in this proceeding. The bill was filed by appellees, who had the burden of showing liability to them on the part of appellants. Whether the creditors generally, including appellees, by general creditors bill or by reopening the administration, or other proceeding, can establish liability against appellants, or any one else, for the money in controversy is not involved on this appeal. Suggestion of error overruled.